southern district of florida securities and …aug 20, 2007 · declan quilligan, anthony j....

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA

CASE NO: 03-80612-CIV-Marra/Johnson

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v.

MICHAEL LAUER, LANCER MANAGEMENT GROUP, LLC, and LANCER MANAGEMENT GROUP II, LLC, Defendants. and LANCER OFFSHORE, INC., LANCER PARTNERS, LP, OMNIFUND, LTD., LSPV, INC., and LSPV, LLC, Relief Defendants. __________________________________________/

RESPONSE OF THE CITCO GROUP LIMITED, CITCO FUND SERVICES

(CURACAO), N.V., CITCO FUND SERVICES (USA) INC., KIERAN CONROY, DECLAN QUILLIGAN, ANTHONY J. STOCKS, JOHN M.S.VERHOOREN

AND INTERCARIBBEAN SERVICES LTD. IN OPPOSITION TO THE RECEIVER’S MOTION TO APPROVE STIPULATION AND AGREEMENT OF SETTLEMENT

The Citco Group Limited, Citco Fund Services (Curacao), N.V., Citco Fund Services

(USA), Inc., Kieran Conroy, Declan Quilligan, Anthony J. Stocks, John M.S. Verhooren and

InterCaribbean Services Ltd. (collectively, the “Citco Defendants”), through undersigned

counsel, respectfully file this Response in Opposition to the Receiver’s Motion to Approve

Stipulation and Agreement of Settlement, and in support thereof state as follows:

Case 9:03-cv-80612-KAM Document 1939 Entered on FLSD Docket 08/20/2007 of 10

1. The Citco Defendants are Defendants in certain ancillary and related proceedings

pending before this Court (Bruhl et al. v. PricewaterhouseCoopers International Limited II, et

al., Case No. 03-23044-CIV-MARRA) (the “Class action”) and before the Honorable Judge

Shira Scheindlin in the United States District Court for the Southern District of New York (The

Pension Committee of the University of Montreal Pension Plan et al. v. Banc of America

Securities, LLC et al., No. 1:05-CV-09016 (SAS) (FM)) (the “Montreal action”).1

2. The proposed Stipulation and Agreement of Settlement (the “Settlement

Stipulation”) for which the Receiver seeks the approval of this Court, purports to settle claims

against Defendants PricewaterhouseCoopers International Limited (“PwC-IL”) and

PricewaterhouseCoopers (Netherlands Antilles) (“PwC-NA”) in the Class action, the Montreal

action, and the separate action filed against these Defendants by the Receiver (the “PwC

proposed settlement”).

3. In the Class action case pending before this Court, the putative class Plaintiffs

filed a Motion for Preliminary Approval of Stipulation and Agreement of Settlement, seeking

approval of the same Settlement Stipulation that the Receiver is seeking approval for in this

receivership action.

4. The Citco Defendants oppose the Settlement Stipulation in that it is highly

prejudicial to the interests of the non-settling Defendants, including the Citco Defendants, in the

Class action and the Montreal action, for many reasons.

1 The Receiver also sued certain of the Citco Defendants in an action styled Court Appointed Receiver of Lancer Offshore, Inc. and The OmniFund Ltd. v. The Citco Group Ltd., et al., Case No. 05-60080-CIV-MARRA, and separately sued PricewaterhouseCoopers (Netherlands Antilles), PricewaterhouseCoopers International Limited, and three individuals, in an action styled Court Appointed Receiver of Lancer Offshore, Inc. and The OmniFund, Ltd. v. Pricewaterhouse Coopers (Netherlands Antilles) et al., Case No. 04-23023-CIV-MARRA.

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5. For instance, the PwC proposed settlement purports to require significant judicial

labor on the part of this Court, notwithstanding that the settlement primarily benefits the

Plaintiffs in the Montreal action. Of the total $22.5 million settlement funds, the Montreal

Plaintiffs are to receive $16.25 million, while the putative class action Plaintiffs are to receive

only $6.25 million. The Montreal Plaintiffs comprise over 73% of the net invested capital of the

Lancer Funds, yet the PwC proposed settlement requires significant judicial labor on the part of

this Court, requiring this Court to hold hearings and briefings on the issue of certification of the

putative class in the Class action, to oversee the notice aspects of the settlement, and to

potentially resolve disputes relating to the distribution of the settlement funds. This Court is also

being asked to review and implement a bar order in the Class action case which is patently

overbroad and unfair to the non-settling Defendants. These efforts will significantly prejudice

the Citco Defendants, who will be required to litigate the class certification issue prematurely

and risk being bound by the certification of a settlement class at this early stage in the litigation,

and who will be bound by any bar order implemented as a part of the settlement.

6. Additionally, the PwC proposed settlement also purports to require significant

oversight by the Receiver, at the expense to the Receivership estate, with respect to a settlement

that will primarily benefit the Plaintiffs in the Montreal action. Specifically, the Settlement

Stipulation requires the Receiver to administer the settlement subject to the jurisdiction of this

Court. It further requires the Receiver to supervise the claims process, determine the propriety of

individual claims, and calculate the appropriate distributions of the settlement funds, for which

the Receiver and his attorneys will charge significant fees. Thus, the Receivership estate will

bear the brunt of the expenses of the administration of the settlement, even though the Montreal

Plaintiffs are the primary beneficiaries of the PwC proposed settlement.

3


7. The terms of the settlement also purport to require this Court to enter a bar order

which precludes the Citco Defendants from bringing claims against persons who are not parties

to this action, which precludes the Citco Defendants from bringing claims that they are legally

entitled to pursue, and which does not contain an appropriate judgment credit as required by law.

The settlement would unjustifiably permit PwC-NA, the auditor of the Lancer Funds that issued

unqualified audit opinions on the Funds’ financial statements upon which the Plaintiffs’

allegedly relied, and its parent company, PwC-IL, to extricate their U.S. affiliate and potential

deep pocket from any liability to any party, including the Citco Defendants, notwithstanding

clear evidence of that U.S. affiliate’s involvement with the work performed on behalf of the

Lancer Funds.

8. Finally, the settlement would require this Court to prematurely determine the

issue of certification of a class in the Class action, even though discovery has not been taken on

this issue and it is apparent even at this stage in the litigation that the prerequisites to class

certification can never be met, in that the Plaintiffs fail to meet the numerosity and adequacy

requirements of a class action.

9. The Citco Defendants have filed a Memorandum of Law in Opposition to

Plaintiffs’ Motion for Preliminary Approval of Stipulation and Agreement of Settlement in the

Class action, stating forth with specificity their reasons why the PwC proposed settlement should

not be approved by this Court. The Citco Defendants expressly adopt the arguments contained in

that Memorandum of Law, a copy of which is attached to this Response for the Court’s

convenience as Exhibit “A” hereto.

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10. Because the PwC proposed settlement is highly prejudicial to the non-settling

Defendants, including the Citco Defendants, this Court should decline to give approval to the

Settlement Stipulation as requested by the Receiver in this action.

CERTIFICATE OF SERVICE

I hereby certify that on August 20, 2007, I electronically filed the foregoing document

with the Clerk of the Court using CM/ECF. I also certify that the foregoing document is being

served this date on all counsel of record or pro se parties identified on the attached Service List

in the manner specified, either via transmission or Notices of Electronic Filing generated by

CM/ECF or in some other authorized manner for those counsel or parties who are not authorized

to receive electronically Notices of Electronic Filing.

GILBRIDE, HELLER & BROWN, P.A. By: __/s/_Lewis N. Brown____

Lewis N. Brown Fla. Bar No. 270008 [email protected] E. Feinberg Fla. Bar No. 371548 [email protected] M. Mullen Fla. Bar No. 0191957 [email protected] Biscayne Tower, Suite 1570 2 South Biscayne Blvd. Miami, Florida 33131 Phone: (305) 358-3580 Fax: (305) 374-1756

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mailto:[email protected]



LANCER RECEIVERSHIP CASE NO. 03-80612-MARRA/JOHNSON

MASTER SERVICE LIST

Christopher Martin Senior Trial Counsel U.S. Securities & Exchange Commission 801 Brickell Avenue - Suite 1800 Miami, Fl 33131

Michael Lauer, pro se Heidi Carens 7 Dwight Lane Greenwich, CT 06831

Heidi Carens 7 Dwight Lane Greenwich, CT 06831

Patricia Beary Office of the U.S. Trustee One Century Tower, Suite 1103 265 Church Street New Haven, CT 06510

James Sowka Office of the Assistant United States Trustee 51 SW 1st Avenue - Suite 1204 Miami, FL 33130

Ms. Nina Fiskaaen Controller, Nordea Liv Norge AS Folke Bernadottes vei 38 5147 Fyllingsdalen 1201 Bergen - NORWAY

Gregory L. McClelland McClelland & Anderson LLP 1305 S. Washington Avenue Suite 102 Lansing, MI 48910

Paul Gentilozzi Rocketsports, Inc. 3400 West Road East Lansing, MI 48823

David Blaylock, Esq. Glankler Brown, PLLC 1700 One Commerce Square Memphis, Tennessee 38103 Counsel for George R. Pidgeon, Sr.

Trisha D. Sindler Special Counsel U.S. Securities & Exchange Commission 801 Brickell Avenue - Suite 1800 Miami, Fl 33131

Jimmy Tsakni c/o Shari A. Brandt, Esq. Richard Spears Kibbe & Orbe, LLP One World Financial Center New York, NY 10281

David Newman c/o Timothy E. Hoeffner 1500 Market street 38th Floor Philadelphia, PA 19102-2186

Frank Paul Terzo Katz Barron Squitero Faust 2699 S. Bayshore Drive Eight Floor Miami, FL 33133

Robert B. Lovett Seyfarth Shaw, LLP World Trade Center East Two Seaport Lane Boston, MA 02210 Counsel for Dean M. Willard

Noah J. Schafler, Esq. The Law Offices of David W. Rubin 600 Summer Street, Suite 201 Stamford, CT 06901

Kenneth B. Robinson, Esq. Rice, Pugatch, Robinson & Schiller, P.A. 101 NE Third Avenue, Suite 1800 Fort Lauderdale, FL 33301

Robert M. Dombroff, Esq. Jonathan Alter, Esq. Bingham McCutchen LLP One State Street Hartford, CT 06103

Michael Lobsinger Bay No. 4, 12110 40th Street SE Calgary, Alberta, Canada T2Z 4K6

Ronald B. Ravikoff, Esq. Matthew T. Davidson, Esq. Zuckerman Spaeder LLP 201 South Biscayne Boulevard Suite 900 Miami, Florida 33131-4326

Jane Serene Raskin Raskin & Raskin 2601 South Bayshore Drive Suite 600 Miami, FL 33133 Counsel for Dean M. Willard

Joshua W. Cohen Cummings & Lockwood 1 Audubon St., Suite 601 New Haven, CT 06511

Zi Corporation Attn: President Suite 2100, 840 - 7 Avenue SW Calgary, Alberta Canada T2P 3G2

Thomas D. Goldberg Day, Berry & Howard LLP One Canterbury Green Stamford, CT 06901

Barbara H.Katz Law Office of Barbara H. Katz 57 Trumbull Street New Haven, CT 06510

Michael R. Magasin Law Offices of Michael R. Magasin 3415 south Sepulveda Boulevard Penthouse Suite 1200 Los Angeles, CA 90034-6072

Joseph P. Moodhe Debevoise and Plimpton 919 Third Avenue New York, NY 10022

James M. Nugent, Esq. KFO Investors Partnership James M. Nugent Harlow, Adams & Friedman, P.C. 300 Bic Drive Millford, CT 06460


Clayton Cunningham P.O. Box 1796 El Segundo, CA 90245

Thaddeus E. Delonis, CPA 290 Towne Center Drive Troy, MI 48084 -1774

Timothy W. Walsh Piper Rudnick LLP 1251 Avenue of the Americas New York, NY 10020-1104

Garry M. Graber c/o Joseph Galda, Esq. Corsair Advisors, Inc. 497 Delaware Avenue Buffalo, NY 14202

Leonard H. Hecht 1270 Avenue of the Americas Suite 214 New York, NY 10020

W. Todd Boyd, Esq. Boyd Mustelier Smith & Parker, P.L. 100 S.E. Second Street. 36th Floor Miami, Florida 33131

Kenneth Marcus 255 East 49 Street Apartment 8B New York, NY 10017

Kenneth G. M. Mather, Esq. Hinshaw & Culbertson 100 S. Ashley Drive Suite 830 Tampa, Florida 33602-5348

Robert Wayne Pearce, Esq. Robert Wayne Pearce, P.A. 1499 W. Palmetto Park Road, #300 Boca Raton, FL 33486

Mr. Morton Sherman 560 Landsdowne Avenue Westmount (Quebec) H3Y 2V6

Lawrence S. Block, Esq. Kenmar Group Inc. 900 King Street, Suite 100 Rye Brook, NY 10573 Counsel for Kenmar Advisory Corp., and Kenmar Management Ltd.

Meghan M. Hart Seyfarth Shaw, LLP World Trade Center Eqast Two Seaport Lane Boston, MA 02210 Counsel for Dean M. Willard

Barry E. Steiner Capitalink, L.C. 4400 Biscayne Blvd. 14th Floor Miami, FL 33137 [email protected]

Zi Corporation c/o Milos Djokovic Zi Corporation of Canada, Inc. Suite 2100, 840 - 7 Avenue SW Calgary, Alberta, T2P 3G2 Canada

Burnett, Duckworth & Palmer LLP c/o Doug A. McGillivray Suite 1400, 350-7 Avenue SW Calgary, Alberta, Canada T2P 3N9


Michael Lauer, pro se 7 Dwight Lane Greenwich, CT 06831 [email protected]

Scott M. Berman, Esq. Anne E. Beaumont, Esq. Friedman, Kaplan,Siiler & Adelman LLP 1633 Broadway , 46th Floor New York, NY 10019-6708 [email protected]/[email protected]

Paul Wallace 9701 S. Bexley Drive Littleton, CO 80126 [email protected]

Christopher Martin Senior Trial Counsel U.S. Securities & Exchange Commission 801 Brickell Avenue - Suite 1800 Miami, Fl 33131 [email protected]

David Cimo Esq. Genovese Joblove & Battista, P.A. Bank of Tower, 36th Floor 100 S.E. 2nd Street Miami, FL 33131 [email protected]

Travis Corder Brown Rudnick Berlack Israels One Financial Center Boston, MA 02111 [email protected]

Bill McCowen Metamora Multi Managers L.L.C. [email protected]

Mr. Helge Syrstad Vesta Forsikring AS P.O. Box 7070 5020 Bergen - NORWAY [email protected]

David P. Milian, Esq. Harley S. Tropin, Esq. Kozyak Tropin & Throckmorton, P.A. 2525 Ponce de Leon Coral Gables 33134 [email protected]/[email protected]

Eric A. Henzy, Esq. Reid and Riege, P.C. One Financial Plaza Hartford, CT 06103 [email protected]

Aaron Podhurst, Esq. Podhurst, Orseck, Josefsburg, Eaton, Meadow, Olin & Perwin, P.A. 25 West Flagler Street - Suite 800 Miami, Florida 33130 [email protected]

Joel H. Bernstein, Esq. Lynda Grant Labaton Sucharow & Rudoff LLP 100 Park Avenue New York, New York 10017 [email protected]/ [email protected]

Roberto Martinez, Esq. Colson Hicks Eidson P.A. 255 Aragon Avenue, 2nd Floor Coral Gables, FL 33134 [email protected]

Joseph Matthews, Esq. Colson Hicks Eidson P.A. 255 Aragon Avenue, 2nd Floor Coral Gables, FL 33134 [email protected]

Carol Felicetta Reid and Riege, P.C. 195 Church Street, 15th Floor New Haven, CT 06510 Counsel for Equity Committee [email protected]

David L. Snyder, Esq. Neuberger, Quinn, Gielen, Rubin & Gibber One South Street, 27th Floor Baltimore, MA 21202-3282 [email protected]/[email protected]

Rudolph F. Aragon, Esq. White & Case Wachovia Financial Center, Suite 4900 200 South Biscayne Boulevard Miami, Florida 33131-2352 [email protected]

Salvatore A. Barbatano, Esq. Foley & Lardner One Detroit Center 150 W. Jefferson, Suite 1000 Detroit, MI 48226-2616 [email protected]

Lewis N. Brown Dyanne E. Feinberg, Esq. Gilbride, Heller & Brown, PA. One Biscayne Tower, Suite 1570 Two South Biscayne Blvd. Miami, Florida 33131 [email protected]

Andrew L. Jiranek McKennon Shelton & Henn LLP 401 East Pratt St., Suite 2315 Baltimore, Md. 21202 [email protected]

Richard E. Johnston Fasken Martineau DuMoulin LLP Patent & Trade Mark Agents P.O. Box 20, Toronto Dominion Centre 66 Wellington St. W, 37th Floor Toronto, Ontario M5K 1N6 Canada [email protected]

Mr. Dylan Wolff Managing Director Norges Investor Value P.O. Box 1863 Vika 0124 Oslo - NORWAY [email protected]

Seth M. Schwartz, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 [email protected].

John Hochman, Esq. Schindler Cohen & Hochman LLP 100 Wall Street, 15th Floor New York, New York 10005 [email protected]

Robert Pershes, Esq. Buckingham, Doolittle & Bouroughs, LLP 5355 Town Center Road, Suite 900 Boca Raton, FL 33486 [email protected]

Paul Steven Singerman Berger Singerman 200 S. Biscayne Blvd., Suite 1000 Miami, Florida 33131 [email protected]

Robert T. Wright, Esq. Coffey & Wright, LLP Grand Bay Plaza Penthouse 2B 2665 S. Bayshore Drive Miami, FL 33133 [email protected]

William R. Maguire, Esq. Jeffrey Greilsheimer, Esq. Hughes Hubbard & Reed, LLP One Battery Park Plaza New York, NY 10004 [email protected] [email protected]

Jacqueline Wilson British Virgin Islands Financial Services Commission Pasea Estate, Road Town Tortola, British Virgin Islands [email protected]

Kevin E. Gunther 27 Reid Street, 1st Floor P.O. Box HM 3051 Hamilton HM NX Bermuda [email protected]




William S. Fish, Esq. William H. Champlin, Esq. Tyler Cooper & Alcorn, LLP 185 Asylum St., CityPlace 35th Floor Hartford, CT 06103 [email protected]/[email protected]

Robert E. Grossman/Scott S. Balber Chadbourne & Parke LLP 30 Rockefeller Plaza New York, NY 10112 [email protected]/ [email protected] Counsel for Amatra and Ajial

Michael Budwick Esq. Meland, Russin & Budwick, P.A. 3000 First Union Financial Center 200 South Biscayne Boulevard Miami, Florida 33131 [email protected]

Kristina M. Bakardjiev, Esquire Goldstein, Tanen & Trench, P.A. One Biscayne Tower, Suite 3700 2 South Biscayne Boulevard Miami, FL 33131 [email protected]

J. Bruce MaffeoMeyer, Suozzi, English & Klein, P.C. 1350 Broadway, Suite 501 New York, NY 10018 Counsel for Martin Garvey [email protected]

Jonathan M. Borg Piteny Hardin Kipp & Szuch LLP 7 Times Square New York, NY 10036-7311

Peter Vigeland WilmerHale 399 Park Avenue New York, NY 10022 [email protected]

Mark A. Salzberg Foley & Lardner Washington Harbour, Suite 500 3000 K Street N.W. Washington, D.C. 20007-5109 [email protected]

William J. Barrett Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLP 333 W. Wacker Drive, Suite 2700 Chicago, IL 60606 [email protected]

Drew M. Dillworth, Esq. Stearns Weaver Miller Weissler Alhadeff Sitterson 150 West Flagler Street, Ste 2200 Miami, FL 33130 [email protected]

David Barrack, Esq. Hal M. Hirsch, Esq. Greenberg Traurig, LLP Met Life Building 200 Park Avenue New York, NY 10166

Carl F. Schoeppl, Esq. Schoeppl & Burke, P.A. 4651 North Federal Highway Boca Raton, Florida 33431-5133 [email protected]

Michael A. Hanzman, Esq. Hanzman & Criden, P.A. Commerce Bank Building 220 Alhambra Circle - Suite 400 Coral Gables, Florida 33134 E-mail : [email protected]

Michael J. Dell, Esq. Kramer Levin Naftalis & Frankel LLP 919 Third Avenue New York, New York 10022 E-mail: [email protected]

Donald Workman, Esq. Foley & Lardner 3000 K Street, N.W. Suite 500 Washington, D.C. E-mail: [email protected]

Timothy P. Harkness, Esq. Kramer Levin Naftalis & Frankel LLP 919 Third Avenue New York, New York 10022 E-mail: [email protected]

Daniel A. Casey, Esq. Kirkpatrick & Lockhart Miami Center - 20th Floor 201 S. Biscayne Blvd. Miami, FL 33131 E-mail: [email protected]

Gregory L. McClelland McClelland & Anderson LLP 1305 S. Washington Avenue Suite 102 Lansing, MI 48910 E-mail: [email protected]

Greg T. Arnold Brown Rudnick Berlack Israels One Financial Center Boston, MA 02111

E-mail: [email protected]

Susan V. Demers, Esq. Price Findlay & Co. Tropic Isle Building, BVI P.O. Box 3331 Road Town, Tortola British Virgin Islands e-mail: [email protected]

Jeffrey Greilsheimer, Esq. Hughes Hubbard and Reed, LLP One Battery Park Plaza New York, New York 10004 E-mail: [email protected]

Brian C. Courtney, Esq. Rome, McGuigan, Sabanosh, PC One State Street Hartford, CT 06103-3402

Dr. Dieter Zetsche DaimlerChrysler AG 70546 Stuttgart (Möhringen) Germany

Gerry LaBush, Esq. 711 Third Avenue Suite 1505 New York, New York 10017 Removed upon Request

Howard L. Siegel Brown Rudnick Berlack Israels LLP Cityplace I, 38th Floor 185 Asylum Avenue Hartford, CT 060103

Garry M. Graber Hodgson Russ LLP One M&T Plaza, Suite 2000 Buffalo, New York 14203

Gary S. Klein Sandak Hennessey & Greco 970 Summer Street Stamford, CT 06905

Anthony & Patricia O’Callagahan/ Christopher B. O’Callaghan/ Diane J. Nelson/John P. Heffernan Attn: Timothy T. Brock Satterlee Stephens Burke & Burke LLP 230 Park Avenue

Mercedes G. Hale Piper Rudnick LLP 101 E. Kennedy Boulevard, Suite 2000 Tampa, FL 33602

::ODMA\PCDOCS\MIAMI\236715\5


Mark S. Gregory Delphine W. Knight Brown Kelley Drye & Warren LLP Two Stamford Plaza 281 Tresser Boulevard Stamford, CT 06901

64036.000002 MIAMI 236715v5


Case 9:03-cv-80612-KAM Document 1939-2 Entered on FLSD Docket 08/20/2007 Page 1 of 62

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA

CASE NO.: 03-23044-CIV-MARRA

JOHN BRUHL, KEITH ROTMAN and SCOTT MALTZ, individually and on behalf of all others similarly situated,

Plaintiffs, vs. PRICEWATERHOUSECOOPERS INTERNATIONAL LIMITED II, PRICEWATERHOUSECOOPERS (NETHERLANDS ANTILLES), THE CITCO GROUP LIMITED, CITCO FUND SERVICES (CURACAO), N.V., KIERAN CONROY, DECLAN QUILLIGAN, ANTHONY J. STOCKS, JOHN M.S. VERHOOREN, JOHN W. BENDALL, JR., RICHARD GEIST, INTERNATIONAL FUND SERVICES (IRELAND) LIMITED, GOLDSTEIN GOLUB KESSLER LLP, and AMERICAN EXPRESS TAX AND BUSINESS SERVICES, Defendants. ________________________________________/

DEFENDANTS THE CITCO GROUP LIMITED, CITCO FUND

SERVICES (CURACAO), N.V., KIERAN CONROY, DECLAN QUILLIGAN, ANTHONY J. STOCKS AND JOHN M.S.VERHOOREN’S

MEMORANDUM OF LAW IN OPPOSITION TO PLAINTIFFS’ MOTION FOR PRELIMINARY APPROVAL OF STIPULATION AND AGREEMENT OF SETTLEMENT

Defendants, The Citco Group Limited, Citco Fund Services (Curacao), N.V., Kieran

Conroy, Declan Quilligan, Anthony J. Stocks and John M.S. Verhooren (collectively, the “Citco

Defendants”), through their undersigned counsel, respectfully file this Memorandum of Law in

Opposition to Plaintiffs’ Motion for Preliminary Approval of Stipulation and Agreement of

Settlement.


INTRODUCTION

The putative class Plaintiffs seek preliminary approval of a settlement with Defendants,

PricewaterhouseCoopers International Limited II (“PwC-IL”) and PricewaterhouseCoopers

(Netherlands Antilles) (“PwC-NA”) that significantly prejudices the interests of the Citco

Defendants. The terms of the settlement purport to require this Court to enter a bar order which

precludes the Citco Defendants from bringing claims against persons who are not parties to this

action, which precludes the Citco Defendants from bringing claims that they are legally entitled

to pursue, and which does not contain an appropriate judgment credit as required by law. The

settlement would unjustifiably permit PwC-NA, the auditor of the Lancer Funds that issued

unqualified audit opinions on the Funds’ financial statements upon which the Plaintiffs’

allegedly relied, and its parent company, PwC-IL, to extricate their U.S. affiliate and potential

deep pocket from any liability to any party, including the Citco Defendants, notwithstanding

clear evidence of that U.S. affiliate’s involvement with the work performed on behalf of the

Lancer Funds. The settlement would also require this Court to prematurely certify a class, even

though discovery has not been taken on this issue and it is apparent even at this stage in the

litigation that the prerequisites to class certification can never be met. This Court should deny

the request for preliminary approval of the settlement for the reasons set forth below.1

1 It is well established that non-settling defendants have standing to object to a partial settlement where they can demonstrate that they will suffer some formal legal prejudice as a result of the partial settlement. Zupnick v. Fogel, 989 F.2d 93, 98 (2d Cir. 1993); In re School Asbestos Litig., 921 F.2d 1330, 1332 (3d Cir. 1990). “There is a consensus that a non-settling defendant has standing to object to a partial settlement which purports to strip it of a legal claim or cause of action, an action for indemnity or contribution for example.” Waller v. Fin. Corp. of Am., 828 F.2d 579, 582-83 (9th Cir. 1987); See also In re Masters Mates & Pilots Pension Plan and IRAP Litig., 957 F.2d 1020, 1031 (2d Cir. 1992) (“third party participation in an evidentiary fairness hearing and court approval of the settlement bar are necessary to protect the due process rights of third parties”).

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THE PREJUDICIAL TERMS OF THE PWC PROPOSED SETTLEMENT

The terms of the proposed settlement with PwC-NA and PwC-IL, as defined in the

Stipulation and Agreement of Settlement (the “Settlement Stipulation”) entered into between the

putative class Plaintiffs in this action, the Receiver of the Lancer Funds, PwC-NA, PwC-IL, and

certain individual PwC Defendants (the “PwC proposed settlement”) are highly prejudicial to the

Citco Defendants in many respects. The many prejudicial aspects of the settlement include the

following:

• The PwC proposed settlement purports to require significant judicial labor on the part of this Court notwithstanding that the settlement primarily benefits the Plaintiffs in the Montreal action

As this Court is aware, 98 individual investors, who purport to represent over 73% of the

net invested capital in the Lancer Funds, brought a separate action which was initially filed in the

Southern District of Florida, but was later transferred to the Southern District of New York at the

request of PwC-NA and with the agreement of counsel for the Plaintiffs in that action. That case

is styled The Pension Committee of the University of Montreal Pension Plan et al. v. Banc of

America Securities, LLC et al., No. 1:05-CV-09016 (SAS) (FM) (the “Montreal action”). The

PwC proposed settlement of $22.25 million will primarily benefit the Plaintiffs in the Montreal

action, who under the terms of the agreement are to receive at least $16.25 million of the

settlement, and may receive more depending upon certain contingencies.2 The putative class

2 Paragraph 13 of the Term Sheet detailing the PwC proposed settlement provides that each Montreal Plaintiff shall be entitled to an additional payment of such amount, if any, as is necessary to equalize that investor’s total pro rata recovery (before attorneys’ fees) from the settlement agreement with the recovery (before attorneys’ fees) of the settlement class members.

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Plaintiffs and the Receiver will receive a maximum of $6.25 million, subject to adjustments that

may reduce that amount.3

Despite the fact that the Plaintiffs in the Montreal action are to receive the lion’s share of

the settlement funds, the PwC proposed settlement requires significant judicial labor on the part

of this Court, requiring this Court to hold hearings and briefings on class certification, to oversee

the notice aspects of the settlement, and to potentially resolve disputes relating to the distribution

of the settlement funds. This Court is also being asked to review and implement a bar order

which is patently overbroad and unfair to the non-settling Defendants. These efforts will

significantly prejudice the Citco Defendants, who will be required to litigate the class

certification issue prematurely and risk being bound by the certification of a settlement class at

this early stage in the litigation, and who will be bound by any bar order implemented as a part of

the settlement.

• The PwC proposed settlement purports to require significant oversight by the Receiver, at expense to the Receivership estate, with respect to a settlement that will primarily benefit the Plaintiffs in the Montreal action

The Settlement Stipulation requires the Receiver to administer the settlement subject to

the jurisdiction of this Court. It further requires the Receiver to supervise the claims process,

determine the propriety of individual claims, and calculate the appropriate distributions of the

settlement funds, for which the Receiver and his attorneys will charge significant fees. Thus, the

Receivership estate will bear the brunt of the expenses of the administration of the settlement,

3 Paragraph 3 of the Term Sheet provides that this sum may be negatively adjusted for amounts paid or incurred and properly charged to the insurance that covers PwC-NA and PwC-IL for Lancer-related claims, as well as the adjustment to the Montreal Plaintiffs in paragraph 13.

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even though the Montreal Plaintiffs are the primary beneficiaries of the PwC proposed

settlement.

• The PwC proposed settlement purports to extinguish potential claims by the Citco Defendants against non-parties, purports to extinguish claims that may not properly be subject to a bar order, and fails to include appropriate safeguards to preserve these claims

The PwC proposed settlement purports to preclude the Citco Defendants from bringing

claims against non-parties to the litigation, in violation of the terms of the Private Securities

Litigation Reform Act (the “PSLRA”). The proposed Final Judgment of Dismissal with

Prejudice as to Defendants PwC-IL and PwC-NA (the “proposed Final Judgment”) provides that

non-settling Defendants, including the Citco Defendants, are permanently barred from bringing

any claim relating to the Lancer Funds against any “Released Person.” The PwC proposed

settlement defines “Released Person” to include not only PwC-NA and PwC-IL, but also “all

other firms that participate in the network of firms connected through membership or otherwise

in PwC-IL (the “PwC Member Network or Connected Firms”), and each of their current or

former partners, principals, directors officers, employees, agents, representatives, or others acting

on their behalf . . . .” As set forth in more detail below, one of PwC-IL’s affiliates,

PricewaterhouseCoopers LLP (“PwC-USA”) had significant involvement in work performed by

PwC-NA on behalf of the Lancer Funds, and the Citco Defendants object to releasing this non-

party, where the Citco Defendants are receiving no consideration for this release. In fact, the

release is not even reciprocal, where the proposed Final Judgment only bars PwC-NA and PwC-

IL from bringing claims against the non-settling Defendants.

Further, the proposed Final Judgment purports to bar claims not only for contribution

under the PSLRA, but also purports to bar indemnification claims and claims “under any other

legal theory.” The bar order far exceeds the permissible scope under the PSLRA. The proposed

5


Final Judgment also fails to include an appropriate judgment credit, and to set forth the

methodology for this credit, as the PSLRA requires.

• The PwC proposed settlement requires the premature certification of a settlement class, notwithstanding that no discovery has been taken and that there are significant issues militating against certification of a class in this case

An additional problem with the PwC proposed settlement is that the putative class

Plaintiffs seek certification of a settlement class at this time. However, due to the PSLRA

discovery stay, there has been no discovery with respect to any issues in the case, including the

issue of class certification. The Citco Defendants should be entitled to take such discovery to

determine whether to oppose class certification. Further, there are several reasons why class

certification is likely inappropriate. The putative class Plaintiffs cannot satisfy the requirements

of Federal Rule of Civil Procedure 23. Clearly, the Plaintiffs cannot prove the requirement of

numerosity, where the Montreal action pending in New York has 98 individual investors as

Plaintiffs, representing over 73% of the net invested capital in the Lancer Funds. There are also

issues relating to the adequacy of the putative class representatives, where at least one of them is

a “net redeemer,” meaning that he has not suffered any monetary losses from his investment in

the Funds. For these reasons, set forth more fully below, the PwC proposed settlement should

not receive preliminary approval by this Court.4

4 The Settlement Stipulation provides that class action counsel may seek attorneys’ fees of up to 20% of the $6.25 million portion of the settlement. Yet, it is clear that the Montreal Plaintiffs’ counsel took the lead in negotiating the PwC proposed settlement, and in taking the confirmatory discovery contemplated by the settlement. The Settlement Stipulation also provides that class counsel may apply for reimbursement of 20% of the collective litigation expenses. This is another example of how the PwC proposed settlement will provide little benefit to the putative class.

6


LEGAL ARGUMENT

A. The PwC Proposed Settlement Improperly Purports to Bar Claims by the Citco Defendants The PSLRA has stringent provisions governing the settlement of claims by only some of

the defendants. In such cases, a settling defendant is entitled to certain protection from future

claims, but is entitled only to the protections specifically afforded by the PSLRA’s provisions.

Paragraph 3(e) of the Settlement Stipulation, and paragraph 10 of the proposed Final Judgment,

contain language that extends far beyond the permissible scope of the PSLRA’s protections, in

that it purports to bar all Lancer-related claims by non-settling Defendants, including the Citco

Defendants, against “Released Persons,” which is defined to include not only PwC-NA and

PwC-IL, but also to include the PwC Member Network or Connected Firms. Specifically, the

proposed bar order is inappropriate because (1) it purports to release entities that are not

“covered persons” under the PSLRA and not parties to this action; (2) it purports to contain

releases that are not reciprocal; (3) it purports to release claims other than claims for

contribution; and (4) it fails to include a provision for a judgment credit under the PSLRA and to

set forth the methodology for the credit.

1. The PwC Proposed Settlement Purports to Release Entities that are not “Covered Persons” and are not Parties to this Action

15 U.S.C.A. § 78u-4(7)(A) provides:

A covered person who settles any private action at any time before final verdict or judgment shall be discharged from all claims for contribution brought by other persons. Upon entry of the settlement by the court, the court shall enter a bar order constituting the final discharge of all obligations to the plaintiff of the settling covered person arising out of the action. The order shall bar all future claims for contribution arising out of the action - -

(i) by any person against the settling covered person; and

7


(ii) by the settling covered person against any person,

other than a person whose liability has been extinguished by the settlement of the settling covered person.

(Emphasis added). A “covered person” is defined by 15 U.S.C. § 78u-4(f)(10)(C), which

provides:

the term “covered person” means - -

(i) a defendant in any private action arising under this chapter; or

(ii) a defendant in any private action arising under section 77k

of this title, who is an outside director of the issuer of the securities that are the subject of the action; . . .

The language of the proposed Final Judgment in this case is inconsistent with the

PSLRA. The bar order purports to bar non-settling Defendants, including the Citco Defendants,

from bringing claims against a “Released Person.” The definition of “Released Person” in the

Settlement Stipulation includes not only the Defendants, PwC-NA and PwC-IL, but also includes

the PwC Member Network or Connected Firms. Thus, the bar order purports to require the Citco

Defendants to release non-parties, which are not covered persons under the PSLRA.

This purported release is significant, since one of the “Released Persons” includes PwC-

USA, an entity that was involved in the work performed by PwC-NA on behalf of the Lancer

Funds.5 As part of the confirmatory discovery relating to the PwC proposed settlement, Plaintiffs

in the Montreal action took the deposition of John Reville, a partner in the PwC-USA office in

New York. Mr. Reville confirmed that because of his prominence in the hedge fund industry, he

5 The Term Sheet attached as an exhibit to the Settlement Stipulation recites that “no PwC Member Network or Connected Firm with the exception of PwC-NA and the United States firm, PricewaterhouseCoopers LLP (“PwC USA”), participated in the performance of, or provided any audit evidence for, any Lancer audit engagement.” (Reville Deposition Ex. 19, Term Sheet, ¶ 2(B)).

8


became involved with PwC-NA in valuation issues relating to securities in the Lancer Funds’

portfolio, thereby becoming a member of the audit staff on the audit of the 2001 financial

statements of Lancer Offshore.6 Prior to the issuance of an unqualified audit report on these

financial statements, Mr. Reville was directly involved in the exercise of auditor judgment that

led to conclusions reached by PwC-NA relating to the valuation of securities in the Lancer

Offshore portfolio. Mr. Reville provided guidance and reference materials to PwC-NA on the

valuation process, participated in conference calls with the parties, and communicated by e-mail

during the audit process. Additionally, Mr. Reville testified that two of his partners at PwC-USA,

Eddy Zuaiter and Philip Mannino, other hedge fund specialists, were involved in the valuation

process in connection with the 2001 audit and perhaps earlier. Further, Mr. Reville confirmed

that PwC-NA used an internal PwC data gathering group headquartered in New York to obtain

pricing data with regard to the Lancer Funds’ investments. Clearly, Mr. Reville’s deposition

establishes that PwC-USA was substantially and directly involved in the audit process relating to

the valuation of the Lancer Funds’ portfolio, which was a critical audit area. Therefore, assuming

arguendo the truth of the allegations in the putative class action Plaintiffs’ Third Amended

Complaint, PwC-USA significantly contributed to the alleged losses of the Lancer investors.

(See Excerpts of deposition of John Reville and exhibits attached hereto as Exhibit “A”).

In AAL High Yield Bond Fund v. Deloitte & Touche LLP, 361 F.3d 1305 (11th Cir.

2004), the district court had entered a bar order which not only barred claims by non-settling

defendants against the settling defendants, but also purported to bar claims against officers and

agents of the bankrupt corporation, who were not parties to the case. The Eleventh Circuit found

6 Initially, Mr. Reville attempted to deny his involvement with the Lancer Funds. He was then confronted with documents to the contrary clearly establishing his and PwC-USA’s role in connection with the Lancer Funds’ valuation issues and audit of Lancer Offshore’s financial statements.

9


that the bar order was “exceedingly broad,” and remanded to the district court for the entry of an

order that was “reasonable, fair and equitable.” Id. at 1312. Here, where the bar order purports

to preclude the Citco Defendants from bringing claims against PwC-USA, which is not a party to

this action and is not a “covered person” under the PSLRA, this Court should decline to grant

preliminary approval of the PwC proposed settlement.

2. The PwC Proposed Settlement Purports to Contain Releases that are not Reciprocal Releases

Another significant problem with the PwC proposed settlement is that the releases

contained in the bar order are not reciprocal. Paragraph 10 of the proposed Final Judgment

provides that non-settling defendants are permanently barred from bringing any Lancer-related

claim against a “Released Person,” but the same paragraph then provides that only PwC-NA and

PwC-IL are permanently barred from bringing a claim against any of the non-settling defendants.

Thus, while the bar order purports to preclude the Citco Defendants from bringing claims against

PwC-USA, it does not contain a reciprocal bar to claims that might be brought by PwC-USA

against the Citco Defendants.

In In re Initial Public Offering Sec. Litig., 226 F.R.D. 186 (S.D.N.Y 2005), Judge

Scheindlin (the judge presiding over the Montreal action in New York) declined to approve a

proposed bar order which was not reciprocal. In that case, certain investors sued various

underwriters, securities issuers and the issuers’ directors involved in the initial public offerings

of 310 technology companies alleging a fraudulent scheme to inflate share prices. Investors in

298 of the cases agreed to settle with the issuers and the individual defendants. The settlement

agreement included a bar order, to which the underwriters objected. Concluding that the bar

order lacked mutuality, Judge Scheindlin observed, “were I to issue a bar order worded in this

way, plaintiffs could pursue the Issuers’ assigned claims (such as those for excess compensation)

10


against the Underwriters, but the Underwriters could not pursue any claims against the Issuers.”

Id. See also Gerber v. MTC Elec. Techs. Co. Ltd., 329 F.3d 297, 308 (2d Cir. 2003) (vacating a

bar order as non-mutual/non-reciprocal, which precluded non-settling defendants from pursuing

claims of contribution and indemnity but permitted settling defendants to pursue such claims

against non-settling defendants); In re PNC Fin. Serv. Group, Inc., 440 F. Supp. 2d 421 (W.D.

Pa. 2006); Wisconsin Inv. Bd. v. Ruttenberg, 300 F. Supp. 2d 1210 (N.D. Ala. 2004); In re Rite

Aid Corp. Sec. Litig., 146 F. Supp. 2d 706, 730 (E.D. Pa. 2001).

In In re Rite Aid, the Eastern District Court of Pennsylvania concluded that the proposed

bar order was inadequate because it was not reciprocal. The court explained:

Taking the PSLRA’s contribution bar as a model, we find it proper that to the extent the Non-Settling Defendants are barred from bringing related actions against the Released Parties, part of the consideration for this bar must, for reasons of fairness, be a similar bar to claims against the Non-Settling Defendants by the Released Parties.

146 F. Supp. 2d at 730. Here, where the proposed releases barring claims by the Citco

Defendants against non-parties including PwC-USA are not reciprocal, the preliminary

settlement should not be approved by this Court.

3. The PwC Proposed Settlement Purports to Bar Claims Other than Claims for Contribution

15 U.S.C.A. § 78u-4(7)(A) provides that a bar order entered pursuant to the PSLRA

“shall bar all future claims for contribution arising out of the action . . . by any person against

the settling covered person.” The PwC proposed settlement purports to bar the non-settling

Defendants, including the Citco Defendants, from bringing “any claim relating to the Lancer

Entities or Partners for contribution and/or indemnification, or under any other legal theory,

regardless of how denominated, or any other claim arising out of or concerning the Lancer

11


Entities or Partners, in this or any other action, against any Released Person.” (Proposed Final

Judgment, ¶ 10). Such an overly broad bar order is impermissible.

In AAL High Yield Bond Fund, the Eleventh Circuit vacated a bar order that it found to be

“exceedingly broad,” which purported to provide for a release of “all related present and future

claims,” beyond the scope of the PSLRA and its mandated release of only contribution claims.

The court found that the district court had expressed no rationale or authority for barring

independent claims. 361 F.3d at 1312. Similarly, in In re Initial Public Offering Sec. Litig.,

Judge Scheindlin refused to accept a proposed bar order that sought to bar claims other than

claims for contribution, stating: “The PSLRA’s settlement discharge provision both mandates a

mutual bar order and limits the scope of that bar order to contribution claims. This Court has

no authority to deviate from the express wording of the statute. Any bar order that the Court

may issue (should the proposed settlement be finally approved) . . . will provide a mutual bar for

claims of contribution; it will not bar the parties from pursuing other claims.” 226 F.R.D. at 201.

Where the proposed bar order improperly seeks to preclude the non-settling Defendants,

including the Citco Defendants, from pursuing claims other than for contribution, it is overly

broad, and the Court should decline preliminary approval of the settlement on this basis.

4. The PwC Proposed Settlement Fails to Include a Provision for a Judgment Credit under the PSLRA

The PSLRA provides a non-settling defendant with the absolute right to receive a

judgment credit intended to offset the non-settling defendants’ loss of the right to bring

contribution claims. The judgment credit is provided for in 15 U.S.C. § 78u-4(f)(7)(B):

If a covered person enters into a settlement with the plaintiff prior to final verdict or judgment, the verdict or judgment shall be reduced by the greater of - -

12


(i) an amount that corresponds to the percentage of responsibility of that covered person; or (ii) the amount paid to the plaintiff by that covered person.

The amount described in 15 U.S.C. § 78u-4(f)(7)(B)(ii) is referred to as the pro tanto method of

determining the appropriate set-off while § 78u-4(f)(7)(B)(i) is proportionate.7 Thus, § 78u-

4(f)(7)(B) provides for a reduction of the verdict or judgment in an amount, which is the greater

of subpart (i) or (ii).

Here, the proposed Final Judgment contains no judgment credit as required by the

PSLRA, and on that basis may not be approved by this Court. The proposed Final Judgment

must set forth the judgment credit and the methodology by which the credit is to be determined,

in compliance with the above-cited provisions of the PSLRA. See Denney v. Deutsche Bank AG,

443 F.3d 253 (2d Cir. 2006) (reversing Judge Scheindlin’s approval of settlement agreement on

the ground that it failed to specify the judgment-reduction method and thereby unfairly

jeopardized the rights of non-settling parties).

7 In In re Jiffy Lube Sec. Litig., 927 F.2d 155, 160-161 n. 3 (4th Cir. 1991), the Fourth Circuit set out the three most common setoff methods:

(1) Pro tanto, in which the judgment is reduced by the amount paid by the settling defendants; the non-settling defendant pays the remainder. This method exposes the non-settling defendant to liability for any deficiency in the judgment, so a hearing focusing on fairness of the settlement to the non-settling defendant is required for approval. (2) Proportionate fault, in which the jury assesses the relative culpability of both settling and non-settling defendants, and the non-settling defendant pays a commensurate percentage of the judgment. Here, the plaintiffs bear the risk of a “bad” settlement and thus have incentive to obtain a settlement accurately apportioned according to fault. (3) Pro rata, in which the judgment amount is simply divided by the number of defendants, settling and non-settling, that are found liable. Relative culpability is not an issue. Since the settling defendants will already have satisfied their debt to plaintiffs, the non-settling defendant may have to pay a share larger than theirs if the judgment is greater than the settlement amount. Conversely, the non-settling defendant will pay less if the judgment is less than the settlement amount.

13


In Denny, the district court’s original order provided that there would be a bar on certain

claims. However, the order did not specify the method for calculating the reduction. Id. at 272.

The appellate court noted that under ordinary circumstances, the potential harshness of a bar

order “is mitigated by a judgment credit provision that protects a non-settling party from paying

damages exceeding its own liability.” The judgment credit provision in Judge Scheindlin’s order,

however, simply provided that the non-settling parties would be “sufficiently” compensated,

without specifying how such compensation would be calculated. The Second Circuit decided that

the non-settling parties were entitled to the same “peace of mind” as the settling parties. Id. at

274. The court stated that Judge Scheindlin’s failure to designate a setoff method “exposes a

non-settling defendant to the risk of receiving inadequate credit for the contribution bar imposed

on it.” Id. at 275. The court concluded that “having achieved certainty with respect to their own

future liability, the [settling defendants] cannot in all equity complain that it is cumbersome to

afford a measure of predictability to the non-settling parties.” Id. at 276.

In this case, the failure to provide a judgment credit is not likely inadvertent, given the

detailed nature of the 40-page Settlement Stipulation and the 19-page proposed Final Judgment.

The parties to the PwC proposed settlement have failed to include a judgment credit for the

protection of the non-settling Defendants, thus providing another reason why this Court should

decline to approve the preliminary settlement.

B. Certification of the Settlement Class is Improper

This Court should further decline to grant preliminary approval of the PwC proposed

settlement where there are also significant issues relating to the putative class Plaintiffs’ request

that this Court certify a settlement class at this time. The Supreme Court of the United States has

made it clear that the rigorous requirements for class certification are not relaxed simply because

14


a class is being certified for settlement purposes, rather than for purposes of litigation. See

Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997) (other than the issue of

manageability, the “other specifications of [Rule 23] … demand undiluted, even heightened,

attention, in the settlement context”). Before a class can be certified, the putative class Plaintiffs

must establish each of the following requirements:

1. The class must be so numerous that joinder of all members is impracticable (“numerosity”); 2. There must be questions of fact or law common to the class (“commonality”); 3. The claims (or defenses) of the representative parties must be typical of the class (“typicality”); 4. The representative parties must fairly and adequately protect the interests of the class (“adequacy”).

Walco Investments, Inc. v. Thenen, 168 F.R.D. 315, 323 (S.D. Fla. 1996). Failure of the putative

class Plaintiffs to satisfy even one of these requirements is fatal to class certification.8 Even at

this stage in the litigation, it appears that the putative class Plaintiffs will be unable to satisfy all

of these factors.

1. Certification of any Class is Premature Since no Discovery Has Been Taken in this Action

Due to the PSLRA discovery stay, there has been no discovery taken in this action with

respect to the issue of class certification. Thus, certification of any class is premature. See

Washington v. Brown & Williamson Tobacco Corp., 959 F.2d 1566, 1570-71 (11th Cir. 1992)

8 In addition to satisfying the four requirements above, before a class can be certified, the putative class Plaintiffs must also establish that “questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.” Fed. R. Civ. P. 23(b)(3). In this case, in order to prove their securities fraud and common law fraud claims, each Plaintiff must show that it relied on some misstatement or omission allegedly made by the Citco Defendants. Since the issue of reliance is unique to each Plaintiff and must be proven by each Plaintiff, it is clear that this action also does not satisfy the requirements of Rule 23(b)(3). See Camden Asset Mgmt., L.P. v. Sunbeam Corp., No. 99-CV-8275, 2001 WL 34556527, at *15 (S.D. Fla. July 3, 2001) (finding class treatment was inappropriate where individual issues of reliance predominated).

15


(court should allow for class certification discovery “to best serve the ends of fairness and

efficiency”); Gross v. Medaphis Corp., 977 F. Supp. 1463, 1475 (N.D. Ga. 1997) (denying

motion for class certification as premature since no class discovery had been taken). Absent

discovery, it is not clear whether class certification is appropriate in this case and, if so, the

precise details of the class that should be certified. For example, the putative class Plaintiffs

propose a class period which runs from September 3, 1998 through July 8, 2003. This proposed

class period may prove to be too broad, since the SEC has alleged that the purported fraud may

not have begun until March 2000. (See Complaint filed in SEC v. Lauer, Case No.: 03-80612-

CIV-Marra). These issues must be fully developed through discovery prior to this Court

certifying a class. Further, as demonstrated below, discovery may reveal that this case is not

appropriate for certification because Plaintiffs are unable to satisfy the requirements of Rule 23.

2. Certification of any Class is Inappropriate Where Plaintiffs Cannot Establish Numerosity

Even at this stage in the litigation, it appears that the putative class Plaintiffs will not be

able to satisfy the four requirements for class certification set forth above. It is unlikely that

Plaintiffs will be able to satisfy the numerosity requirement, where Plaintiffs will not be able to

establish that the class is so numerous that joinder of all members is impracticable. In

determining whether putative class action plaintiffs can satisfy this requirement, courts consider

a number of factors, including:

(1) judicial economy arising from the avoidance of a multiplicity of actions; (2) the geographic dispersion of class members; (3) the financial resources of class members; (4) the ability of claimants to institute individual lawsuits; (5) the amount of each member’s individual claim; (6) knowledge of the names and existence of the potential class members; and (7) whether potential class members have already joined other actions.

Primavera Familienstiftung v. Askin, 178 F.R.D. 405, 410 (S.D.N.Y. 1998)

16


Of these factors, courts have held that knowledge of the names and existence of the

potential class members is one of the most important factors, since it renders joinder practicable.

See id. at 410-11. In this case, most, if not all, of the names of the investors in the Lancer Funds

are already known to the parties or can be ascertained with little difficulty. Thus, joinder of all

putative class members is practicable and class certification should be denied. See Moore v.

Trippe, 743 F. Supp. 201, 211 (S.D.N.Y. 1990) (“[T]here appears to be little difficulty in joining

all the members of the [class] in this one action … all the members … are clearly known…”).

Moreover, 98 individual investors have already joined together to prosecute an action

currently pending in the Southern District of New York. Those 98 investor Plaintiffs in the

Montreal action purport to represent over 73% of the net invested capital in the Lancer Funds.

Thus, it is clear that a “multiplicity of actions” can no longer be avoided. It is also clear that

investors representing the majority of the net invested capital in the Lancer Funds have already

indicated their ability to institute individual lawsuits and their disinterest in being a part of the

putative class action. These facts demonstrate that Plaintiffs will be unable to satisfy the

numerosity requirement.9 See Primavera Familienstiftung, 178 F.R.D. at 410-11 (court found

numerosity not met where 61 of the potential class members had already brought five individual

9 These 98 investors specifically determined that they did not want to be part of a class action. As set forth in a pleading filed in a related action in April 2004 by the Montreal Plaintiffs, shortly after the SEC action was commenced against Lauer and the Lancer Funds, several investors formed an Ad Hoc Committee which contacted over 20 lawyers to discuss pursuing their own action. Of the 20 law firms, only the Kozyak Tropin & Throckmorton firm (one of the putative class counsel firms) suggested a class action. The investors determined not to hire that firm or to pursue a class action, instead choosing Scott Berman and his firm Brown Rudnick Berlack Isreaels LLP. The 98 investors expressly rejected the class action vehicle as inappropriate due to the presence of state law claims, and did not agree with a contingency fee arrangement. Accordingly, they chose to file a separate action to pursue their claims. See Notice of Filing Memorandum in Opposition to Joint Motion of Purported Class Plaintiffs for Entry of a Pretrial Scheduling Order filed in Bruhl v. PricewaterhouseCoopers Int’l Ltd. et.al, Case No. 04-802520-CIV-HURLEY [DE 10].

17


actions which were pending before the court); Block v. First Blood Assocs., 125 F.R.D. 39, 42-43

(S.D.N.Y. 1989) (numerosity not satisfied where all potential class members were identified and

only twenty-four of the fifty-seven potential members of the class had expressed any interest in

the putative class action).

Additionally, the numerosity requirement is not satisfied in this action where the

investors in the Lancer Funds are all sophisticated investors, the majority of whom invested well

over $1 million in the Funds, and some of whom invested tens of millions of dollars. See

Primavera Familienstiftung, 178 F.R.D. at 411 (numerosity also not satisfied where the potential

plaintiffs were “sophisticated investors, with sufficient financial resources to protect their own

interests”).

3. Certification of any Class is Inappropriate Where Plaintiffs Cannot Establish the Adequacy of the Class Representatives

Further, it is unclear whether Plaintiffs will be able to satisfy the adequacy requirement

with respect to John Bruhl being appointed as a class representative. Rule 23(a)(4) requires that

the representative parties must fairly and adequately protect the interests of the case. This

requirement applies both to the class representatives and to class counsel. London v. Wal-Mart

Stores, Inc., 340 F.3d 1246, 1253 (11th Cir. 2003). The requirement that the class be adequately

represented is very important, because “all members of the class are bound by the res judicata

effect of the judgment” of the court. Lyons v. Georgia-Pacific Corp. Salaried Employees Ret.

Plan, 221 F.3d 1235, 1253 (11th Cir. 2000).

There is a significant question in this action as to whether John Bruhl is an adequate class

representative, due to the fact that he may be a “net redeemer” in, at the least, the Lancer

Offshore Fund. Specifically, there is an indication in this action that John Bruhl redeemed, at a

minimum, all of the funds he invested in Lancer Offshore (and potentially also made a profit

18


from his investment), and thus may have actually benefited from the alleged fraud in this case.

See Notice of Filing Memorandum in Opposition to Joint Motion of Purported Class Plaintiffs

for Entry of a Pretrial Scheduling Order, filed in Bruhl v. PricewaterhouseCoopers Int’l Ltd.

et.al, Case No. 04-802520-CIV-HURLEY [DE 10]. Thus, it does not appear that John Bruhl

would be an adequate class representative in this action. See Valley Drug Co. v. Geneva

Pharmaceuticals, Inc., 350 F.3d 1181, 1189 (11th Cir. 2003) (finding lack of adequacy where

certain national pharmaceutical wholesalers actually experienced a net gain from the lack of

generic drug in the market as a result of alleged anti-competitive behavior).

CONCLUSION

For the reasons set forth above, this Court should decline to grant preliminary approval to

the PwC settlement.

19


CERTIFICATE OF SERVICE

I hereby certify that on August 17, 2007, I electronically filed the foregoing document

with the Clerk of the Court using CM/ECF. I also certify that the foregoing document is being

served this date on all counsel of record or pro se parties identified on the attached Service List

in the manner specified, either via transmission or Notices of Electronic Filing generated by

CM/ECF or in some other authorized manner for those counsel or parties who are not authorized

to receive electronically Notices of Electronic Filing.

GILBRIDE, HELLER & BROWN, P.A. By: __/s/_Lewis N. Brown____

Lewis N. Brown Fla. Bar No. 270008 [email protected] E. Feinberg Fla. Bar No. 371548 [email protected] M. Mullen Fla. Bar No. 0191957 [email protected] Biscayne Tower, Suite 1570 2 South Biscayne Blvd. Miami, Florida 33131 Phone: (305) 358-3580 Fax: (305) 374-1756

20





SERVICE LIST

Bruhl et al. v. PricewaterhouseCoopers International Limited et al., Case No. 03-23044-CIV-MARRA

Harley S. Tropin, Esq. David P. Milian, Esq. Adam M. Moskowitz, Esq. KOZYAK TROPIN & THROCKMORTON 2525 Ponce de Leon 9th Floor Coral Gables, FL 33134 [email protected]@[email protected] -and- Aaron Podhurst, Esq. PODHURST, ORSECK JOSEFSBERG, et al. 25 W. Flagler Street Suite 800 Miami, FL 33130 [email protected] -and- Joel H. Bernstein, Esq. Lynda J. Grant, Esq. GOODKIND LABATON RUDOFF et al. 100 Park Avenue New York, NY 10017 [email protected]

(Counsel for Plaintiffs)

Andres Rivero, Esq. RIVERO & MESTRE, P.A. Miami Center, Suite 1450 201 South Biscayne Blvd. Miami, FL 33131 [email protected] -and- Jonathan L. Hochman, Esq. SCHINDLER COHEN, ET AL. 100 Wall Street, 15th Floor New York, NBYU 10005 [email protected] Rudolph F. Aragon, Esq. WHITE & CASE LLP Wachovia Financial Center, Suite 4900 200 S. Biscayne Blvd. Miami, FL 33131 [email protected] -and- Lawrence J. Zweifach, Esq. Kevin A. Burke, Esq. Richard Cashman, Esq. HELLER, EHRMAN LLP Times Square Tower 7 Times Square New York NY 10036-6524 [email protected](Counsel for PricewaterhouseCoopers International Limited)

21





Robert Pershes, Esq. Craig Rasile, Esq, BUCKINGHAM, DOOLITTLE & BURROUGHS Adnrew Zaron, Esq. 5355 Town Center Road, Ste 900 HUNTON & WILLIAM Boca Raton, FL 33486-1069 1111 Brickell Avenue, Ste 200 [email protected] Miami, FL 33131 [email protected]

[email protected] [email protected]

-and- (Counsel for the Receiver) William C. Rand, Esq. LAW OFFICE OF WILLIAM C. RAND 711 Third Avenue, Suite 1505 Nicolas Swerdloff, Esq. New York, NY 10017 HUGHES HUBBARD & REED LLP [email protected] 201 S. Biscayne Blvd., Ste 2500 Miami, FL 33131 (Counsel for John W. Bendall) [email protected]

-and- Robert T. Wright, Esq. COFFEY & WRIGHT, LLP John M. Greilsheimer, Esq. Grand Bay Plaza HUGHES HUBBARD & REED LLP Penthouse 2B One Battery Park Plaza 2665 S. Bayshore Drive New York, NY 10004-6000 Miami, FL 33133 [email protected] [email protected]

(Counsel for PricewaterhouseCoopers (Netherlands Antilles)

-and- Seth M. Schwartz SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP Four Times Square New York, NY 10036 [email protected] (Counsel for International Fund Services (Ireland) Limited)






W. Todd Boyd, Esq. BOYD MUSTELIER SMITH ET AL Bank of America Tower at at International Place, 36th FL 100 S.E. Second Street Miami, FL 33130 [email protected] -and- Douglas Capuder CAPUDER FAZIO GIACOIA LLP 90 Broad Street New York, NY 10004-2627 [email protected] -and- Alexandra A.E. Shapiro, Esq. Latham & Watkins, LLP 885 Third Avenue Suite 1000 New York, NY 10022-4802 [email protected] (Counsel for Goldstein Golub Kessler LLP)




southern district of florida securities and …aug 20, 2007 · declan quilligan, anthony j....

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